Decrease in import affected CAD

JAKARTA. The further decreases in imports have driven the improvement in the current account deficit (CAD) in 2016. According to BI (the Central Bank), the 2016 CAD amounted to US$ 16.3 billion or 1,8% of the Gross Domestic Product (GDP). Last year, the CAD amounted to US$ 17.5 billion or equal to 2% of the GDP.

According to BI, the improvement in CAD was driven by the improvements in the performance of trade and service balances. The surplus in trade balance in 2016 has increased by US$ 8.78 billion, much higher than the surplus in 2015 that only amounted to US$ 7.67 billion. According to National Statistic Agency (BPS), the surplus in 2016 is the highest surplus during the recent five years.

The increase in trade balance was driven by the decrease in import as much as 4.94% (yoy), while the export decreased by 3.93% (yoy). The deficit in service trade balance also improved, following the decrease in import.

The BI’s data show that the surplus of capital and financial transactions have increased significantly from US$ 16.8 billion in 2015 to US$ 29.2 billion in 2016.

The increase in the surplus of capital and financial transactions was driven by the increase in the surplus of direct investment and portfolio investment. “This is in line with the positive perspective of the economic participants over the domestic economy and the implementation of tax amnesty program,” said Executive Director of Communication of BI Tirta Segara, Friday (10/2).

Surplus of payment balance

The improvements in the CAD and in the surplus of capital and financial transactions have driven the surplus in Indonesia’s Payment Balance (NPI) in 2016. According to BI, the NPI booked as much as US$ 12.1 billion surplus in 2016, after suffered deficit as much as US$ 1.1 billion in 2015. The increase in NPI was in line with the foreign exchange reserves rise from US$ 105.9 billion as of the end of 2015 to US$ 116.4 billion as per the end of 2016.

Data of BI show that, the balance of service has continuously decreased during the last five years. During 2011-2015, the balance of service amounted to around US$ 8 billion-US$ 11 billion, while the balance of income in the same period has always been deficit at around US$ 25 billion-US$ 29 billion.

In 2016, the balances of service and income suffered deficit again. Governor of BI Agus Martowardojo revealed, the balances of service and income recorded deficits of US$ 6 billion and US$ 30 billion, respectively.

BI predicts that the CAD in 2017 will be broader to 2.4% of the GDP. The widening deficit was affected by the potentials of import growth in this year. This is in line with the improvement in the economic growth, of which BI predicts will be ranging at 5%-5.4%. Agus added, the deficit widening to 2.5%-3% of GDP is still considered as the sustainable condition.

The economist at Maybank Indonesia Juniman projects that the CAD will increase to 1.8% of GDP in the quarter I-2017. During the same period, the export performance is expected to be under pressure, while the import would be stable. “The export would be stagnant, due to the decrease in the exports of concentrates,” he said.

Juniman also expects that the NPI in the quarter I-2017 will remain surplus thanks to the foreign capital inflow. This would be affected by issuance of global sukuk as much as US$ 2.5 billion in the last month. “We expect that the NPI would be surplus at around US$ 2.5 billion so that the foreign exchange reserves will increase to US$ 118.5 billion by the end of March 2017,” he added.